Rough Ride for Conrail

Six bankrupts do not add up to a winner

It all seemed so simple. Two and a half years ago, as Congress sought ways to rescue the Northeast's dying railroads, the advocates of the Consolidated Rail Corp., or Conrail for short, had all the answers. Basing their predictions on optimistic extrapolations, they promised that a unification of the region's six roads,* plus a one-time federal grant of $2 billion, would produce an efficient system that would be riding in the black by 1979.

Unfortunately, things did not turn out that way. Despite the $2 billion infusion, Conrail is now losing far more money than the six decrepit lines did collectively before the consolidation. After a 1977 loss of $367 million, Conrail is rumbling toward a deficit of more than $400 million this year, and the trend is definitely downgrade. So perilous is its financial position that the House at last week's end was driving toward following the Senate's example and passing an emergency bill that would give Conrail another $1.3 billion. Even so, the U.S. Railway Association, the agency created by Congress to oversee Conrail, warned that an additional $2.6 billion probably will be needed. Daniel O'Neal Jr., chairman of the Interstate Commerce Commission, readily admits that Conrail has a rough road ahead. Says he: "I think Conrail is in a critical period right now. Everyone is going to be watching closely to see if there are improvements."

The nation's largest rail system, Conrail has annual revenues of $3.3 billion, 90,000 employees and 34,000 miles of track crisscrossing the Northeast, stretching west to Missouri and north to Canada. Though most of its business is freight, it also carries 360,000 commuters each weekday to New York City, Philadelphia, Baltimore and Chicago. For all these superlatives, Conrail continues to hemorrhage money because its equipment was in worse shape and its labor force was more featherbedded than almost anyone in Washington had suspected.

Conrail inherited such a hodgepodge of worn-out equipment that even after $600 million in repairs, much of the rolling stock is still unreliable. At any moment, 12.4% of Conrail's 140,000 freight cars are either laid up for repairs or on the verge of breakdown.

The situation is no better with the line's 4,500 aging locomotives. Largely as a result of frequent breakdowns and long delays, the on-time arrival of shipments has fallen from 75% in 1976 to 65%--a dismal performance that angers shippers and causes them to switch to trucks.

Conrail is also plagued by high labor costs and uneconomic routes. Because it inherited the entire work forces of the six lines and has avoided large-scale layoffs, it spends 660 of every revenue dollar on labor costs, vs. an average 520 for other U.S. railroads. Clamoring Congressmen have blocked Conrail from eliminating service on a number of money-losing short lines that helped drive the six railroads into bankruptcy in the first place. Even Conrail's best trunk lines are short one-way hauls, with the cars returning to the terminal as empties. Explains William Druhan, a senior staffer for the House Transportation Subcommittee: "Union Pacific carries something 2,000 miles and gives it to Conrail, which carries it 200 miles and unloads it."

Conrail's president, Richard D. Spence, quit last June. So far, Chairman Edward G. Jordan, who is chief executive officer, has failed to find a replacement. Jordan, 48, concedes that few railroad pros would want the job because "it's a high-risk situation."

Still, there have been some achievements. Before Conrail's creation, the New Haven division of Penn Central was a shambles. Now, after large contributions for new equipment by New York State, Conrail operates the line with a good on-schedule record. Throughout the sprawling system, the roadbed, key to a smooth ride, is being rebuilt. By year's end Conrail will have installed 13.9 million crossties and laid 2,787 miles of continuous welded rails. It also will have acquired 392 new locomotives and 5,900 new freight cars, paid for entirely by private financing.

Conrail has managed to consolidate the 285 labor contracts that it inherited into only 35, and it has gained union approval to cut the crew on a freight train from four to three. Says Charles Swin-burn, a Department of Transportation rail expert: "If you had taken the best railroad management in the country--the Southern Railway's, for instance--I don't know whether they would have done anything differently from the Conrail management."

To a large degree, Conrail's ills only reflect the wider problems besetting the nation's railroads. Though a healthy rail system is more essential than ever to save gasoline and carry coal, the industry has been held back for years by overregulation by the ICC, which keeps rates high in order to protect inefficient lines--and thus often makes the railroads uncompetitive with rival transport systems.

John N. Sullivan, the federal railroad administrator, warned last week that unless the railroads are allowed to become more competitive, in the next ten years they will face a shortage of $13 billion to $16 billion in capital required to keep roadbeds and equipment in shape. The best action that the Carter Administration could take in support of the railroads would be to apply at least a measure of the deregulation flexibility that is already freeing the nation's soaring airlines from the fetters of federal bureaucracy. -

* The six: Central of New Jersey, Erie Lackawanna, Lehigh and Hudson River, Lehigh Valley, Penn Central and the Reading.

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